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Originally Posted by Dahak
Do internal hyperlinks work (i.e. tables of contents)?
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Yes.
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How do you embed images? Is it as simple as using the HTML IMG tag, as with Rocket Editions?
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Yes.
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Do you define the paragraph formatting on a book-wide scale, or per paragraph?
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Either. You can do it with CSS, or with local tags.
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Do they have a feature for chapter breaks? (Rocket Editions would end a page and start again on the next screen when encountering a horizontal rule tag with size attribute of zero.)
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Yes. Different tools will use different methods for this. My favourite LRF book-creation tool is "Book Designer", and that will automatically insert a page break at each "title".